North Dakota Leads Nation in R&D Increase

Guess which state most increased spending on research and development in the first five years of the new century?

North Dakota.

Yep, the State Science & Technology Institute tracked the amount each state spent on R&D per dollar of gross state product, and from 2000 to 2004 the state that had the largest percentage increase was little old North Dakota. No other state was even close to North Dakota's more than 200 percent increase.

North Dakota now ranks 16th in R&D spending per dollar of gross state product. (Gross state product is the total of all the value added by industries within a state. It's the local equivalent of the GDP, the gross domestic product.) New Mexico is first.

R&D spending is essential to spurring economic innovation. States that invest in research create new jobs and raise incomes. [2]

North Dakota shows how a small, largely rural state can become a player in the high tech, knowledge-based economy. It's a tremendous story of how government, universities and industry can cooperate to build a high-tech economy in rural communities.

The story of North Dakota's current R&D strategy begins in 1999 and 2000 with two independent movements. In 1999, the North Dakota legislature asked for a study of the state's higher education system. The legislature "looked into the future" and saw a state that, unless things changed, would continue to lose population, fall further behind the national average in per capita income and be unable to compete in the knowledge-based economy. The result of the legislative resolution was the Roundtable on Higher Education, which brought together private sector leaders, university presidents and legislative leaders. The legislature urged that the Roundtable proceed with "utmost urgency" in addressing the state's future.

The Roundtable issued its report in 2000. And what the participants came up with was a deal between all three parties. Roundtable member Tom Shoma, president of WCCO Belting, Inc., describes a grand bargain reached at the Roundtable: If university presidents would manage their institutions for the benefit of the state and the state's economy, the state would give those campus leaders flexibility in how they could go about managing their institutions and meeting those goals.

One research project in North Dakota is the design of a new spacesuit. [3] The Badlands are the perfect terrain to test prototypes.
Photo: University of North Dakota

Before the Roundtable, Shoma says, campus presidents were "figureheads." There had been "too much control by people who don't understand higher education." "We gave them flexibility in how they run their institutions," Shoma says. "We told them, you figure it out...That was the theme that came out of the initial Roundtable."

What also came out of the Roundtable, according to advertising executive Roger Reierson, was a "change in mission." The universities were asked to become engaged in the construction of a knowledge-based economy, and that, Reierson said, "was probably the biggest thing that came out of the Roundtable, that universities should play a big part in the economic growth of our state."

At the same time the Roundtable was producing its 2000 report, another private-sector effort began. The New Economy Initiative (led by Reierson) began holding meetings around North Dakota. The NEI embraced four principles:

"¢ The state's "economy will grow from what currently exists."
"¢ "Changing technologies and market trends will shape opportunities."
"¢ "Local and regional leadership will drive effective, long-term growth."
"¢ "Catalytic initiatives can spark large changes."

The Higher Education Roundtable and the New Economy Initiative found both a political spokesman and a program in Gov. John Hoeven. Hoeven proposed his centers of excellence idea -- but with touches of both the NEI and the Roundtable. The initial Centers of Excellence (COE) proposal required that universities pair with industry partners (who would match the state's contribution). The COEs were "a result of the Roundtable," said Reierson. "The Centers of Excellence go hand in hand with the Roundtable. And the key to the entire thing was that we really formed a good partnership -- elected officials, private industry and the university."

At North Dakota State University (the state's land grant school), officials turned to their "core competencies," says Philip Boudjouk, NDSU's vice president for research. Boudjouk was a chemist before becoming university bureaucrat and while doing research he often worked with private firms. "What I learned was that every company has a dozen projects approved at the highest levels, but typically they only have funding for three or four." In deciding which areas to establish COEs, Boudjouk said, "We went to the companies and said what's your next one if you had the money." Now, he says, the university has a new attitude about its research. "We do market driven research and it originates with the company, with a problem tied to the market," Boudjouk said.

North Dakota has picked niche markets. One is surface protection, a specialty at NDSU for over 100 years. Why? It turns out the first chairman of the NDSU chemistry department was a cantankerous scientist by the name of Edwin F. Ladd. "Nobody ever accused Ladd of being a nice person," Boudjouk said. Ladd had a habit of taking people he disagreed with to court and when the chemistry professor found a paint he had used to be unsatisfactory, he "went after" the paint companies. Besides legal recourse, Ladd began research at NDSU into surface protection -- a specialty that remained at the university long after Ladd left what was then North Dakota Agricultural College to became a U.S. Senator and the author of some of the nation's first food and drug laws.

North Dakota has managed to build a culture of knowledge. The Roundtable has continued to meet and to monitor what the universities have done. The state tracks the percentage of kids graduating from North Dakota universities who stay in the state to work. The Roundtable found that the universities were not aligned with the jobs the state was producing in knowledge-based industries. Kids couldn't learn at North Dakota universities what they needed to know to qualify for North Dakota's jobs. The universities responded and the percentage of graduates choosing to stay in the state has been climbing. The success of the COEs and the growing percentage of students deciding to stay in the state has had the effect of turning the private sector members of the Roundtable into the state's most vocal advocates for the universities.

The private industry members of the Roundtable met at special session of the Roundtable last April in Kathryn, North Dakota. The business leaders noted that previous Roundtables had made a deal with the universities: If they would "take a more active role in improving economic conditions in our state," then the Roundtable and the government then the universities "would directly benefit accordingly with the reward of increased state funding." The universities, the private sector members said, had been "exceptional" in carrying out their end of the bargain. The state, however, had failed to maintain state funding at a benchmark of the total state budget. The Roundtable said this was a "breach of faith." Moreover, the Roundtable's private sector members changed the language of higher education funding. This was from the Roundtable's 2006, industry-only report:

"The private sector views this as an investment, and not a cost, to assure continued economic growth. This investment will in turn provide the resources necessary to support the other important education and social services needed throughout the state."

In North Dakota, the primary backers of increased spending on higher education and R&D comes from private industry. No wonder the state ranks #1.

Below is SSTI's list of all fifty states. The chart shows the ratio of total research and development spending to gross state product in 2000 and 2004. The SSTI chart also shows the percentage increase in spending and gives rankings both for total spending and the increase from 2000 to 2004.